Trader’s plan or the first step to trading
If someone asks 100 traders to send a copy of their plan, there is a 99% chance that the answer will be no. Unlike business owners, who typically have a business plan to provide a strategic vision for employees and focus on their core business; most traders never spend time creating a plan.
If the investor already has a plan, well, he is in the minority. While this is not yet an absolute guarantee of success, the trader has eliminated one major hurdle. In the future, if his plan uses incorrect methods or he lacks training, then success will not come immediately, but at least the novice investor will be able to chart and change the course.
A common mistake is to neglect the plan because of the strategy. Experience has shown that one cannot do with one strategy. It is too narrowly focused and cannot cover all aspects of future success. The plan contains the following areas:
1. Preparation for trading, assessment of the physical and emotional state of the investor.
2. The methodology and the conditions for the application of various strategies for trending and ranging.
3. Basic factors audit rules and list of news sources.
4. Profit and loss limits.
5. Goals for the day, week and month.
6. Actions in critical situation.
The trader’s plan structure
First, the trader needs to form a sober estimate of his strength. Has the strategy been tested? What is the percentage of confidence that it will work? Will the investor give up the given strategy in the middle of the way? If the trader does not yet have his own trading strategy, it is better to stop here and work it out to the extent that the confidence in its implementation reaches 100%.
Also, do not forget about the emotional preparation. Trading can be a good emotional shake up, so it is important that the trader trades without stress. It is not recommended to enter the market during illness or experiencing strong emotions. It is necessary to be sure that the opening of the order takes place during the emotional and psychological stability.
Another important rule is to set the risk level. When trading, the trader needs to know his limits. By the way, professional investors tend to risk no more than 1-5% of their capital.
What about targets? Before entering the market, the investor should set goals for himself in terms of realistic profit margins and risk / reward ratio. The trader should set weekly, monthly and annual profit targets and regularly evaluate them to make sure he is on the right track.
Preparation is also important. Before the start of each trading day, the specialist performs a number of steps before making a new transaction. For example, examining the top news for the day, sets out areas of support and resistance on chart, or even reads the trading plan.
In addition, it is necessary to set the rules of entry and pulling out. Every investor knows that when opening a trade, the entry should be based on a proven trading strategy. And in this they are helped by trading plans that specify exactly when and where they should enter, what indicators should do, what should be done for pricing and what happens in different periods of time. Then the investor should be ready to pull out of the deal for a predetermined purpose. Although often the offer to keep the position open seems very tempting. Even if the market moves in favor of the investor, it can change at any time.
Even if the trading plan is written, it should be remembered that this is only the first step in the long process. At this point, it’s still just an idea or a template for the final product. The trader will have to thoroughly test his plan before bringing it to the market.